C-Suite Cheat Sheet: Medicare Part B

Educational briefing for suppliers and service providers

Executive summary

Medicare Part B, commonly referred to as Medicare medical insurance, covers a range of services and supplies, including preventative care, lab tests, outpatient prescription drugs, and durable medical equipment. These services can be furnished in a variety of outpatient care settings. Like commercial insurance enrollees, Medicare Part B enrollees must pay a monthly premium and are subject to an annual deductible and a coinsurance rate (typically around 20%).

Medicare reimburses providers for Part B services based on annual fee schedules, updated each year. Notably, the Medicare Access and CHIP Reauthorization Act (MACRA) repealed the previous formula used for updating the Medicare Physician Fee Schedule (PFS) and created the Quality Payment Program (QPP). As the result of MACRA, beginning in 2019 many providers will face payment adjustments based on their ability to deliver high-quality, cost-efficient patient care; however, some clinicians will be exempt from MACRA and will continue to receive payment under the traditional fee-for-service (FFS) model.

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Why is Medicare Part B a key issue for providers?

Medicare Part B, with its associated updates and regulations, determines how physicians are paid for care. Traditionally, Medicare reimbursed providers billing Part B on a fee-for-service (FFS) basis. With the passage of MACRA, many Part B providers will now be subject to new reporting requirements that incentivize delivery of high quality, cost-efficient care.

In addition, yearly updates to the PFS can often dictate providers’ focus areas as the Centers for Medicare and Medicaid Services (CMS) may increase or cut payment for certain clinical services. Finally, increased cost scrutiny by payers means that providers must in turn scrutinize the cost of supplies covered under Part B, including durable medical equipment and outpatient pharmaceuticals.

How does Medicare Part B work?

Medicare Part B is financed through Congressionally-authorized funds, beneficiary premiums, and interest earned on Medicare trust fund investments. Because Part B is partially funded by beneficiary premiums, it does not face the same solvency challenges as Part A. However, future Part B spending will require increases in funding and higher premiums paid by beneficiaries.

Part B covers a range of outpatient services that can be furnished at a variety of care settings, including doctors offices, hospitals, ambulatory surgical centers, skilled nursing facilities and other post-acute care settings, hospices, outpatient dialysis facilities, clinical laboratories, and beneficiaries’ homes.

CMS determines Part B providers’ fee-for-service payment through a number of fee schedules. The Medicare Physician Fee Schedule (PFS) lists more than 7,000 unique codes and their payment rates, accounts for geographic variations in the cost of practicing medicine, and is updated each calendar year. Other fee schedules include the ambulance fee schedule, clinical laboratory fee schedule, and durable medical equipment, prosthetics/orthotics & supplies fee schedule.

How does Medicare Part B affect providers?


Each year, the Medicare Physician Fee Schedule (PFS) outlines Part B physician payment policies. In 2017, CMS demonstrated their interest in boosting payment for primary care, care management and coordination, and cognitive services through the creation of new payment codes. In part, these codes are designed to facilitate greater coordination between primary care physicians (PCPs) and behavioral health professionals to offer more coordinated care delivery. As such, they offer providers additional incentive to holistically manage patients’ care and to focus on offering preventive services.

In addition, as Medicare Part B broadly moves from a traditional fee-for-service to a value-based care model, physicians must demonstrate positive clinical outcomes and will be held accountable for the quality of care delivered. Physicians may also focus on the clinical effectiveness of drugs administered in the outpatient space.


Medicare Part B determines how physicians are compensated for care delivered in a variety of care settings. The annual updates to the Medicare PFS determine that year’s conversion factor, which directly impacts physicians’ total payment. In 2017, the conversion factor is slightly higher than in 2016. However, it’s important to note that the conversion factor is still trending at a lower level than national inflation, meaning providers are being asked to do more work with less financial compensation.

While providers will enjoy improved reimbursement for primary care services (1% payment increase), other specialties will see considerable payment cuts. Specifically, independent labs face the greatest payment cut of 5%. On top of these financial shocks, MACRA will tie overall payment to physician performance on quality outcomes, electronic health record (EHR) use, and practice transformation activities, such as improved care coordination.


Providers billing Medicare Part B will need to scale up their data collection and reporting efforts. In addition to quality metrics and EHR use, MACRA requires providers to report on new clinical practice performance metrics. Physician leaders must ensure providers understand and are aware of new reporting requirements and are working to inflect positive outcomes in those areas.

While providers may see benefit from increased reimbursement for primary and chronic care management, they must overcome significant administrative burdens to successfully report on their progress to date. Finally, because Part B services are furnished in a variety of care sites, coordination among providers will be crucial to reducing the overall cost of care.

How might Medicare Part B impact provider-supplier sales relationships?

Medicare Part B may impact provider-supplier relationships in the following three ways:

Providers need partners to help monitor and reducing cost variation in the outpatient space. While reducing cost and quality variation are not new initiatives, increased scrutiny over Part B costs is leading providers to ramp up variation-reduction efforts across multiple sites of care. As such, providers may look to industry members to help identify and target key sources of variation.

Providers may demonstrate heightened cost-scrutiny towards durable medical equipment and outpatient pharmaceuticals. As providers face pressure to reduce their Part B costs, they will likely look to medical equipment and pharmaceutical vendors to show how their products and services can cost-effectively improve quality outcomes.

MACRA ups the ante on value-based payment for physicians; many undertaking quality reporting for the first time. Providers billing Part B have been required to report on cost and quality outcomes; however, the passage of MACRA has compelled more Part B providers to focus on delivering high-value, rather than high-volume care. Some of these providers have less experienced with quality reporting and thus may look to industry to guide reporting efforts.

Conversation starters with medical group and physician leaders

1. What initiatives do you have in place to reduce cost and quality variation in the outpatient space?

2. What adjustments have you made in response to the 2017 Medicare Physician Fee Schedule update?

3. What mechanisms do you have in place to report on quality measures through MACRA?

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